You see them on magazine covers and hear them on talk radio. They are usually just a single short sentence, designed to do one of three things: 1) get you riled up, 2) validate your current behavior, or 3) pique your interest. They are myths, and today we will look at, and try to dispel, some common life insurance myths.
Young, healthy people can wait to get life insurance
Although we know they won’t stay young forever, we don’t know for how long they will remain healthy. Disease can strike anyone at any moment. While there will always be things we would rather buy than life insurance, the fact that it becomes more expensive with each passing year makes for a compelling argument to buy it when we are young.
Only breadwinners need life insurance
I wrote a whole essay on life insurance for a non-working spouse, but the short answer is, if it has value, it should be insured. It is evident that a non-working spouse provides significant value to the family, and therefore should be insured.
Single people don’t need life insurance
While most single people have no dependents, some do. It could be a parent or other elderly relative, or a child from a former relationship. Additionally, many single people have debt; often in the form of a student loan, but also car loans, credit card debt, and sometimes real estate mortgages. All of those must be repaid at death.
One type of policy is superior to another
As has been said here numerous times, the different types of policies are designed for different needs. Short term needs are best met with term insurance, as by definition, the need soon won’t be present. Longer term needs are best met with cash value insurance, because the term insurance will expire at a certain point, almost always before life expectancy.
A sure-fire method exists for determining the precise amount to buy
Because of the assumptions built into the different formulae, they will never produce an exact amount. For example, a hypothetical interest rate must be assumed at which proceeds can be invested. Actual results could be higher or lower, but rarely the same, especially for extended periods of time.
Investing beats insurance
The insurance companies are not run like the federal government runs the social security system. They don’t take in premiums and then turn around and pay out those premiums as claims. The premiums are invested by professional money managers who have extensive experience in the conservative investment arena. So while it’s debatable if this myth is true in the long run, but it certainly isn’t true in the short run.
The common theme of these myths is oversimplification. They make great headlines or sound bites and are meant to sell more of the media in which they appear. But you know what they’re not meant to do? They are not meant to educate. So they next time you see or hear one, recognize it for what it is: a teaser comment designed to elicit a reaction, but provide little to no value.